Minister Martin opens Forfás Productivity Conference in Dublin

Address by Minister for Enterprise, Trade and Employment Micheál Martin at the Forfás Productivity Conference in Farmleigh on Friday 28 ^th October 2005

Good Morning

I am delighted to be here to open this Conference on Productivity and Public Policy.

I want to thank Forfás for arranging this event. It is an important event on an important subject. There is a lot of knowledge based on experience and a rich set of perspectives in this room. I hope that we can today capture that knowledge and deepen our understanding of the dynamics of productivity.

I also want to thank Joe Macri who instigated a very timely and astute analysis of Ireland’s productivity performance as part of Microsoft’s celebration of 20 years in Ireland. I know it has provided a contribution to our thinking and has helped in a wider context to heighten awareness about how critical productivity is to economic growth.

Globalisation is providing huge opportunities for companies with international ambitions but it is also presenting unprecedented competitive pressures. In London this week the EU Heads of State and Government are discussing this very topic and how Europe and the Member States should respond. Countries such as China, India and South East Asia are developing rapidly and are now also competing for high-tech manufacturing and services activities. There is a blurring of the traditional differences between the industrialised and developing countries and there is now a “race to the top” in the pursuit of high paid, knowledge-intensive economic activities.

However, it is important to recognise that as well as presenting a huge challenge, I know that you will agree that this new economic environment also offers us great opportunities. Developing economies are becoming increasingly affluent importers and consumers. The top 6 emerging economies not only rank among the top ten exporters but are also among the top ten importers in the world.

We have seen a huge transformation in the economy of Ireland. From the late 1980s onward economic management improved, the labour force expanded, we modernised our laws and we invested in upgrading our infrastructural base. Enterprise investment and exports grew as Ireland become more integrated in to the international economy.

But the factors that gave rise to the boom are not those that can take us to the next phase of our prosperity. Wage costs in Ireland increased by 35 per cent between 1999 and 2004, while business costs continue to rise. Given these trends, it is hard to envisage that our economy can build a successful future on the basis of the same price and cost competitiveness model that has brought us many years of growth and higher incomes. Efforts to revitalise competitiveness will now have to concentrate on improvements in how we use all our resources to produce the goods and services from which we earn our living in the real world. The true importance of the productivity debate is the capacity and insight it gives us to make changes today that will strengthen our strategic competitiveness tomorrow and into the next decades.

To some extent our growth, which has seen our economy triple in size since 1985, can be attributed to a form of catching up with wealthier trading partners, stimulated by the impact of both public policies and private investment. Of course, we had a long journey to go before the rewards of better economic management and investment returns absorbed under-utilised resources. This resulted in higher employment rates. But now the sources of growth will no longer come mainly from growth in the numbers employed. Rather, in common with other advanced economies, we will have to rely on stronger productivity growth throughout the economy.

But if we agree that productivity is the most important determinant of competitiveness and growth do we also agree on what the key productivity drivers are and what are the most fruitful areas for public policy intervention? These questions are of course at the heart of your debate here this morning.

There is a range of factors that impact on productivity levels. For developed economies in particular, knowledge – and its development and use through investment in skills, education, research and development – will be at the heart of the drive towards increasing productivity levels. Investments in infrastructure and technology, with particular reference to ICT, are also critical in enhancing productivity. These areas are addressed in the context of our national development planning, the next phase of which is currently under preparation.

How important is the regulatory environment in building productivity growth? We know that competition is the great driver of innovation. Our regulatory environment must be constructed so as to foster competition.

Should we look at sectors when we consider productivity or indeed specific sub sectors that might be highly productive? For example most jobs in the economy are in the services sector. This sector now employs about two out of three people at work. Furthermore, it is likely to be the source of future employment for our citizens but its productivity levels tend to be lower than in, for example, the manufacturing sector. While this is a feature of the services sector generally in modern economies, it is the case, for example, that productivity levels in this domain in Europe tend to be lower than in the US. Is this due to cultural factors or can we simply put it down to a better use of Information Technology?

And what of firm level productivity? It’s just over a year since I became Minister for Enterprise, Trade and Employment. In that time I have visited many companies at all parts of the value chain – some facing daily challenges and others delivering a super performance. Whatever the company or sector, I have been left with one clear impression. Each company has its own strategic issues to manage and there are different market nuances even within the same sector. Consequently for policymakers, building firm-level competitiveness is very complicated. It can be driven by any number of changes from technology to skill improvements or by intangible changes such as developing an innovation culture or by getting closer to customers and thus having a more refined intuitive understanding of their needs and of different markets.

Given the rate of change that globalisation is quickly bringing about, I wonder whether policymakers can have sufficient insight or real time understanding of the full range of complexities in managing or building firm-level productivity improvements. For that reason I will be interested to hear what Ken Warwick tells us about how productivity analysis helped to change thinking about practical industrial and economic policy implementation in the UK.

Indeed I am anxious that the debate does not end after lunch. Following your discussions today I would like to hear a lot more about what areas would be most fruitful in informing public policy if we were to embark on an exercise in productivity research. This perspective could also point us towards potential activity that might help enterprise in an all island context, especially where we have innovative companies working in similar dynamic sectors or activities. What I also have in mind is trying to get a sharper sense of how we can more effectively and dramatically get large and small companies alike to champion productivity as the new competitiveness imperative.

I think we have to be realistic enough to acknowledge that this is likely to be a very big task, especially when it comes to services. As the economy develops the services sector will in all probability prove to be the main driver of growth and employment. In this connection, I was struck by one figure in this year’s annual report from the National Competitiveness Council that showed Ireland’s share of the world’s trade in services grew from 0.5% in 1998 to 2% in 2004. This is far more than the size of our economy would naturally suggest, but it gives some indication of the potential of services if we can crack the productivity problem linked with the sector and establish new forms of competitive advantage.

The productivity debate can sometimes seem a long way from the daily pressures on enterprise to win profitable business against competition that faces a much more favourable set of business costs. I am pleased that this conference has attracted a good combination of enterprise and researchers – a necessary mix of experience to keep the debate practical yet informed by the rigour of academic analysis and thinking.

To conclude I would like to wish you well for a stimulating debate. I have asked some hard questions but I am confident that today will lead to some innovative thinking for new policy choices. A step change in productivity growth might not happen today but I would like to think that today will help reshape our thinking about tomorrow.

Go raibh mile maith agaimh go léir.

ENDS

ETE 1444